Lease vs. buy/financing analysis and incredible confusion
I’m on my second lease but looking to get it taken over because I need a bigger car (van or SUV). Once I’m out of that contract I’m open to all options and was certain for a while that I’d buy/finance because it’s just like leasing (paying monthly) but at the end of the financing you own a car you can sell for cash. So the plan was to finance a new car, own it until before its first major ($2000+) required maintenance, and sell it to buy a new car with. That way, I get the benefit of a lease (stable month payments and no large cash down payment) but also a car to sell off when it becomes too expensive to keep because of age.
This made sense until I remembered how much cars depreciate in the first second off the lot. So why I’m now thinking this is a bad idea is I’ll be the guy swallowing the initial depreciation every time I buy new. I buy a new car and get it financed for the full ticket amount. I drive it off the lot and can now only sell it for at least $2-5K less than new as it’s now a used car. I own it for a few years until I want to get rid of it, say in 5 years. I will not be able to sell it for amount left on the financing because it’s value has depreciated from the principle amount over time. So I’ll still have to fork over my own cash to zero out the balance owing on the financing. I could do this pre-emptively and put a down payment down but that’s still me shelling over a few thousand cash.
So now I’m back to thinking leasing is the best financial method to have access to a car. I put nothing down, I pay a predictable monthly amount, and get a new car every 5 years. (Apologies to any environmentally-focused folks; I know this is the worst thing you can do in terms of footprint, but I can’t afford to be green at the moment). The benefit of buying is being able to sell the car to pay off the financing eventually but considering depreciation I don’t see how I would not have to fork out additional money beyond the monthly payments.
Just for an example:
I currently lease an Elantra for about $250 bucks a month. Besides maintenance, I don’t have any other costs. And I return the car in 5 years, hopefully without spending too much money on large maintenance work. I might need to pay for new tires at the end of the lease but hopefully no other damage or wear and tear costs. I lease a new Elantra, and pay about the same again for 5 years. Rinse and repeat forever.
($250 x 60 months = $15000 every 5 years)
I buy a new Elantra and get it financed for the lowest monthly amount possible since I don’t plan on ever paying the plan off entirely. I look to sell the car in 5 years while it’s still got a good resale value. But I will not get principle minus the portion paid off through monthly payments with which I can pay off the rest of the financing because the used car on the open market will not be worth that much. So let’s say I get 75% of the amount in a sale, I still need to come up with 25% to pay off the financing. So there’s a need for me to spend beyond the monthly amount I pay. And this isn’t even thinking about interest rates and the fact that monthly payments are usually bigger on financing than a lease.
(I just checked the Hyundai website and they're offering 0% interest for 60 months financing so the comparative math is relatively easy: $373 x 60 months = $22400 and I own the car after 5 years which is worth about $8000. That would be great and probably the best case scenario but I can't afford those monthly payments so I'll increase the term to 96 months at 1.99% to get $250 a month. Now I want to sell after 5 years and get about $8000. I've paid off $15000 and still owe $7400. Oh... so I have almost enough to pretty much pay off the financing. So I'm clear. Huh.. didn't expect that. It's good to do the math sometimes lol. BUT I'm back to zero and now have to do this all over again... so really it's a lot more headache (selling a car privately) for what seems like the same result as leasing which is having a car for 5 years at a cost of $15000.)
Guys, my brain is fried. What's the best move here?